Boeing: Yet Another 737 Production Delay Does Not Affect Our Forecast

Our reaction to news that Boeing BA will temporarily slow 737 production and deliveries due to more supply chain and quality issues is that the fundamental story hasn’t changed—these planes will be delivered and Boeing will clear its backlog, but it adds more delay. Our current forecast doesn’t have the last inventoried 737s leaving Boeing’s hands until early 2026, so we are not changing our $220 per share fair value estimate. Until this news, Boeing was actually on pace to exceed our estimated 737 deliveries, having delivered 14 more in the first quarter than we forecast.

The FAA stated planes in service with this fuselage bracket issue can keep flying, which seems to indicate it is not too serious or can be addressed during routine maintenance, versus hauling them all into the shop as soon as possible, which would be a material bad news event akin to what happened in 2019. The fault is shared by Spirit Aero Systems, which reportedly assembled or attached some tail brackets in the rear fuselage incorrectly, and Boeing, which seems to continually uncover new supply chain and quality control issues. Subjectively, it is dismaying to see news like this as we believe Boeing has the worst news behind it. We are disappointed that all the scrutiny and rework on these exact planes didn’t uncover this issue sooner. There may be a sort of silver lining, in that these issues came to light partly because these planes were in the last stages of inspection before delivery versus sitting on the lot waiting for delivery “someday.”

In terms of financial impact to Boeing, we don’t see this necessarily becoming significant, since Boeing took charges against the value of these planes long ago. It’s just the delay in a return to a much better cadence of deliveries and cash flows that may weigh on the shares in the short term.